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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM ITA No.1166/Mum/2015 (A.Y:2006-07) ITA No.621/Mum/2015 (A.Y:2005-06)
Balasore Alloys Ltd. Asst. Commissioner of Income Tax, (Foremrly Ispat Alloys Ltd.) Central Circle 3(2) Rasalpur Balaore, Orissa Vs. Earlier DCIT 18 & 19 Orissa756020 402 Aayakar Bhavan, M.K. RD Mumbai, Mumbai-20 .. Appellant Respondent PAN No. AAACI3967P ITA No.667/Mum/2015 (A.Y:2006-07) Asst. Commissioner of Income Tax, Balasore Alloys Ltd. Central Circle 3(2) Foremrly Ispat Alloys Ltd Earlier DCIT 18 & 19 Vs. Rasalpur Balaore, Orissa 402 Aayakar Bhavan, M.K. RD Orissa756020 Mumbai, Mumbai-20 .. Appellant Respondent
Assessee by .. Shri D.V. Lakhani, AR Revenue by .. Shri K. Ravi Kiran, DR Date of hearing .. 07-04-2017 Date of pronouncement .. 07-04-2017 O R D E R PER MAHAVIR SINGH, JM:
These two cross appeals, and one by the assessee, are arising out of the order of CIT(A)-51 & CIT(A)-39, Mumbai, in appeal Nos. CIT(A)-51/IT- 26/2013-14 & CIT(A)-39/AC.CC22/IT-40/2013-14 dated 25-04-2013 & 10-10- 2014. The Assessments were framed by DCIT Circle-18&19, Mumbai for the A.Ys. 2005-06 & 2006-07 vide order dated 31-03-2013 under section 153A read with section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in Revenue’s appeal in ITA No. 667/Mum/2015 for AY 2005-06 is as regards to the order of CIT(A) in holding that assessment under
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section 153A of the Act can be made only on the basis of seized material wherever the assessment have not abated. For this Revenue has raised following grounds: -
“1. "Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in holding that the assessment u/s 53A does not entail fresh assessment and is limited to the material seized during the course of search."
"Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) failed to appreciate that u/si 53A the Assessing Officer is required to asses or reassess the total income of the assessee for six assessment years and is not restricted to undisclosed income based on seized material."
"Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in confining the appeal to assessment u/s 153A and not disposing the appeal on merits of the case."
"Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to set off carry forward unabsorbed depreciation ignoring the legal position exiting during that time which does not permit set off of unabsorbed depreciation beyond eight years."”
Briefly stated facts are that the assessee is a public limited Company engaged in the business of manufacturing of ferro alloys. For the relevant AY 2005-06 assessee filed its return of income on 30-11-2006 under section 139(1) of the Act along with audited accounts, audited report and other statutory documents. The AO framed the assessment under section 143(3) of the Act vide his order dated 22-03-2007 accepting the nil income but adjusted unabsorbed business loss of earlier years and determine the income under section 115JB of Page 2 of 17
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the Act at Rs. 79,51,121/-. Subsequently, on 30-11-2010, a search and seizure action was carried out on the Ispat group of cases, including assessee under section 132 of the Act. In response to the search action, the AO issued notice under section 153A of the Act and assessee filed its return of income on 15-05- 2012 declaring nil income. The AO completed the assessment under section 143(3) read with section 153A of the Act and added back a sum of Rs. 39,04,49,429/- being remission of portion of current years’ loans and declined to grant deduction of Rs. 3885.98 lakhs being electricity charges payable and also rejected the claim of set off of unabsorbed depreciation pertaining to AY 1995- 96 already allowed under section 143(3) of the Act originally framed assessment on 22-03-2007. Aggrieved, assessee challenged the jurisdictional issue before CIT(A) that no assessment can be framed under section 153A of the Act and wherein no seized materials relatable to additions were found. The CIT(A) decided the issue by observing in Para 5.2 to 5.3 as under: -
“5.2 I have very carefully considered the matter. in the instant case, there was an action under s. 132(1) of the Income Tax Act on 30.11.2010. The regular assessment under s. 143(3) of the income Tax Act had been completed as per order dated 22.03.2007. Therefore, it follows that as on the date of search, there was an assessment completed on the appellant tinder s. 143(3). In the said order there is no addition/ disallowance regarding the remission of foreign currency term loan. Subsequently, the A.O. initiated proceedings under s. 153A and in the assessment completed under s. 143(3) r.w.s. 153A, the A.O. has brought to tax a sum of Rs. 39,04,49,429/- being the principal amount of loan waived by the lender. As per clause (a) of Section 153A, upon search the A0. shall issue notice to the person who has been searched to furnish the Return of income in respect of each assessment year falling within six assessments years referred to in clause (b) of Section 153A in the prescribed form and verified under the prescribed Page 3 of 17
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manner and within such period as may be specified in the notice. Clause (b) of Sec. 153A(1) provides that the A.0. shall assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. The first proviso to Section 153A(1) provides that the A.0. shall assess or reassess the total income in respect of each assessment year falling within such assessment years. As per second proviso to Section 153A(1), the assessment or reassessment, if any, relating to any assessment year falling within a period of six assessment years referred to in this section pending on the date of initiation of search under s. 132 or making of requisition under s. 132(a) as the case may shall abate. Evidently, in the instant case, the appellant's case falls under the second proviso to Section 153A(1) and thus, is a case of non-abatement of proceedings. It thus follows that it is assessments that are pending on the date of search that shall abate and not the completed one; it is in the case of abated assessments that the AO gets jurisdiction for making assessment or reassessment of the relevant year. In other words, the scope of assessment under s. 153A will arise in the case of completed assessments where search or other material can lead to a prima facie inference of liability. This is a case of non-abated assessment. It has been held by the special bench of the Hon'ble Tribunal in the ease of All Cargo Global Logistics Ltd. vs. DCIT 137 ITD 287 (MUM) (SB) that in assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him under s. 153A for which assessments shall be made for each of the six assessment years separately. In other case, in addition to the income that has already been assessed, the assessments under s. 153A will be made on the basis of incriminating material Page 4 of 17
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discovered in the course of search. This view has been reiterated in the case of ACIT vs. Pratibha Industries Ltd. 141 ITD 151 (MUM). While dealing with a similar issue in the case of Gurinder Singh Bawa Vs. DCIT [1TA No. 2075/Mum/2010 dated 16.11.2012], the Hon'ble Tribunal had held that in cases where assessment has been completed, and where there was no proceedings pending as on the date of search, the addition could be made only on the basis of incriminating material found during search. In this context, it is relevant to take note of the judgement of the Karnataka High Court in the case of Canara Housing Development Co. vs. DCIT [ITA No. 38/2014]. In the said case, the Karnataka High Court was dealing with the question of law-
'When once the proceedings under s. 153A of Act is initiated, whether the Commissioner of Income tax can invoke the power under s. 263 of the Act to review the order of assessment passed by the Assessing Authority?
While answering the said substantial question of law the Court has examined the provisions of Sec. 153A of the Act and the scope of powers of the A.O. once an assessment is reopened consequent upon search being initiated. The relevant portion of the observations of the court as can be found in paragraph 10 of the judgment dated 25.07.2014 is reproduced below-
"Under s. 153A, however, the Assessing Officer has been given the power to assess or reassess the “total income" of the six assessment years in question in separate assessment orders. The Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed Page 5 of 17
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during the scorch. He has been entrusted with the duty of bringing to tax the total income of any assessee whose case is covered by Sec. 53A, by even making reassessments without arty fetters. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. When once the proceedings are initiated under s. 153A of the Act, the legal effect is even in case where the assessment order is passed it stands reopened. in the eye of law there is no order of assessment. Reopened means to deal with or begin with again. It means the Assessing Officer shall assess or reassess the total income of six assessment years. Once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the "total income" of each year and then pass the assessment order.
A perusal of the above quoted observation reveals that if in the course of assessment proceedings, the A.O. comes to the conclusion that the assessee has earned certain income which is not disclosed in the earlier Return of Income nor was such income detected in the course of search, yet such income can be considered for assessing the total income of the assessee. Thus, what the Hon'ble Court has stated is that if in the course of assessment proceedings, the A.O. should come across any income which was not disclosed in the earlier return nor was it Page 6 of 17
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found in the course of search, such income can be brought to tax while assessing the total income. In the case of the appellant, it is seen that the remission of foreign currency loan fees had been disclosed in the earlier return and no new or fresh facts have come into light nor has the A.O. come across any new income. It is also pertinent, in this context, to refer to the decision of the jurisdictional High Court in the case of CIT vs. Mmii Agro Products (ITA No. 36/2009 per order dated 29.10.2010). Moreover, it is a settled legal position that the decision of the jurisdictional High Court is the binding precedent even if the same is contrary to the decisions of the other High Courts. In the said case, the Hon'ble High Court was dealing with the question of whether the ITAT was justified in cancelling the order of the CIT passed under s. 263 of the Income Tax Act. In the case before the Bombay High Court, assessment was completed before the date of search. The Court in paras 12 and 13 of its order observed as follows-
"12) Once it is held that the assessment finalized on 29.12.2000 has attained finality, then the deduction allowed under section SOHHC of the Income Tax Act as well as the loss computed under the assessment dated 29.12.2000 would attain finality. In such a case, the A. 0. while passing the independent assessment order under Section 153A read with Section 743(3) of the Income Tax Act could not have disturbed the assessment /reassessment order which has attained finality, unless the materials gathered iri the course of the proceedings under Section 153A of the income' Tax Act establish that the reliefs granted under the finalized assessment
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/reassessment were contrary to the facts unearthed during the course of 153A proceedings.
13) In the present case, there is nothing on record to suggest that any material was unearthed during the search or during the 153A proceedings which would show that the relief under section SOHHC was erroneous. In such a case, the A.O. while passing the assessment order under Section 153A read with Section 143(3) could not have disturbed the assessment order finalized on 29.12.2000 relating to Section 80HHC deduction and consequently the CI. T. could not have invoked jurisdiction under Section 263 of the Act."
A perusal of the above quoted pronouncement of the Bombay High Court reveals that an assessment which was completed before the date of search and has attained finality can be disturbed only if material is gathered in the course of proceedings under s. 153A of the Act to justify that the relief granted under the finalized assessment was contrary to the fact unearthed during the course of 153A proceedings. Thus, unearthing new facts in the course of 153A proceedings is sine qua non for disturbing a finalized assessment. It is seen that in the case of the appellant herein no material was seized in the course of search; no new material has been unearthed in the course of proceedings under s. 153A.
5.3 On an appreciation of the judicial pronouncements as discussed above, the conclusion that can be drawn is that while reassessing the income under the provisions of Sec. 153A, in the case of non-abated assessment, where no incriminating material is found and where no new facts in the course of 153A proceedings have been unearthed, the A.O. is not enabled to reassess the income by taking a Page 8 of 17
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view different from the views taken earlier while completing the assessment under s. 143(3) of the Act. It, therefore, follows that the addition as made with regard to the remission of foreign currency loan is not sustainable and is therefore not sustained. The addition made in a sum of Rs. 39,04,49,429/-is therefore deleted.”
Aggrieved now, Revenue is in second appeal before us.
We have heard the rival contentions and gone through the facts and circumstances of the case. Now, before us the learned CIT DR. could not assail the order of CIT(A) or on query from the Bench could not produce any seized material pertaining to this AY relatable to assessee in regards to the additions made by AO. Once this is the position, the issue is squarely covered in favour of assessee by the decision of the Hon'ble Bombay High Court in the case of CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 374 ITR 645 (Bom).
We find that this issue now stands covered in favour of assessee and against the Revenue by the decision of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra), wherein considering the judgment of the Special Bench of the Mumbai Tribunal in the case of All Cargo Global Logistics 137 ITD 287(SB) (Mum), considered this issue that, whether there is scope of assessment u/s. 153A of the Act in respect to completed assessment which is limited only to undisclosed income and undisclosed assets found during the course of search or not? Hon'ble High Court held that on a plain reading of section 153 of the Act it becomes clear that on initiation of the proceedings u/s. 153A of the Act, it is only the assessment/reassessment proceedings that are pending on the date of conducting search u/s. 132 of the Act stand abated and not the assessments/reassessments already final for those assessment years covered u/s. 153A of the Act. Hon'ble High Court also discussed the CBDT Circular No. 8 of 2003 dated 18.09.2003 reported in 263 ITR (st.) 61 at page 107 wherein CBDT has clarified that on initiation of proceedings u/s. 153A of the Act the proceedings pending in appeal, Page 9 of 17
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revision or rectification proceedings against final assessment shall not abate. It is only because the final assessments do not abate the appeal, revision or rectification pending against final assessments would not abate. Therefore, Hon'ble High Court rejected the arguments of the Revenue that on initiation of proceedings u/s. 153A of the Act, the reassessment final for assessment years covered u/s. 153A of the Act stands abated. Only the pending assessments get revived u/s. 153A of the Act. Hon'ble High Court further held that once assessment has attained finality, then the AO while passing independent assessment order u/s. 153A/143(3) of the Act could not disturb the assessment order which has attained finality unless the material gathered in the course of search u/s. 132/153A of the Act established that the finality attained in the assessment were contrary to the facts unearthed during the course of search. The relevant portion of the judgment reads as under: -
“31. We, therefore, hold that the Special Bench's understanding of the legal provision is not perverse nor does it suffer from any error of law apparent on the face of the record. The Special Bench in that regard held as under:-
“The provision under section 153A is applicable where a search or requisition is initiated after 31.5.2003. In such a case the AO is obliged to issue notice u/s 153A in respect of 6 preceding years, preceding the year in which search etc. has been initiated. Thereafter he has to assess or reassess the total income of these six years. It is obligatory on the part of the AO to assess or reassess total income of the six years as provided in section 153A(1)(b) and reiterated in the 1st proviso to this section. The second proviso states that the assessment or reassessment pending on the date of initiation of the search or requisition shall abate. We find that there is no divergence of views in so far as the provision contained in section 153A till the 1st proviso. The divergence starts from the second proviso which states that pending Page 10 of 17
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assessment or reassessment on the date of initiation of search shall abate. This means that an assessment or reassessment pending on the date of initiation of search shall cease to exist and no further action shall be taken thereon. The assessment shall now be made u/s 153A. The case of Ld. Counsel for the assessee is that necessary corollary to this provision is that completed assessment shall not abate. These assessments become final except in so far and to the extent as undisclosed income is found in the course of search. On the other hand, it has been argued by the Ld. Standing Counsel that abatement of pending assessment is only for the purpose of avoiding two assessments for the same year, one being regular assessment and the other being assessment u/s 153A. In other words these two assessments coalesce into one assessment. The second proviso does not contain any word or words to the effect that no reassessment shall be made in respect of a completed assessment. The language is clear in this behalf and therefore literal interpretation should be followed. Such interpretation does not produce manifestly absurd or unjust results as section 153A (i)(b) and the first proviso clearly provide for assessment or reassessment of all six years. It may cause hardship to some assesses where one or more of such assessments has or have been completed before the date of initiation of search. This is hardly of any relevance in view of clear and unambiguous words used by the legislature. This interpretation does not cause any absurd etc. results. There is no casus omissus and supplying any would be against the legislative intent and against the very rule in this behalf that it should be supplied for the purpose of achieving legislative intent. The submissions of the Ld. Counsels are manifold, the foremost being that the provision u/s 153A should be read in conjunction with the provision contained in section 132(1), the reason being Page 11 of 17
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that the latter deals with search and seizure and the former deals with assessment in case of search etc, thus, the two are inextricably linked with each other.
Before proceeding further, we may now examine the provision contained in sub-section (2) of section 153, which has been dealt with by Ld. Counsel. It provides that if any assessment made under subsection (1) is annulled in appeal etc., then the abated assessment revives. However, if such annulment is further nullified, the assessment again abates. The case of the Ld. Counsel is that this provision further shows that completed assessments stand on a different footing from the pending assessments because appeals etc. proceedings continue to remain in force in case of completed assessments and their fate depends upon subsequent orders in appeal. On consideration of the provision and the submissions, we find that this provision also makes it clear that the abatement of pending proceedings is not of such permanent nature that they cease to exist for all times to come. The interpretation of the Ld. Counsel, though not specifically stated, would be that on annulment of the assessment made u/s 153(1), the AO gets the jurisdiction to assess the total income which was vested in him earlier independent of the search and which came to an end due to initiation of the search.
The provision contained in section 132 (1) empowers the officer to issue a warrant of search of the premises of a person where any one or more of conditions mentioned therein is or are satisfied, i.e. - a) summons or notice has been issued to produce books of account or other documents but such books of account or documents have not been produced, b) summons or notice has been or might be issued, he will not produce the books of account or other documents mentioned therein, or c) he is in Page 12 of 17
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possession of any money or bullion etc. which represents wholly or partly the income or property which has not been and which would not be disclosed for the purpose of assessment, called as undisclosed income or property. We find that the provision in section 132 (1) does not use the word "incriminating document". Clauses (a) and (b) of section 132(1) employ the words "books of account or other documents". For harmonious interpretation of this provision with provision contained in section 153A, all the three conditions on satisfaction of which a warrant of search can be issued will have to be taken into account.
Having held so, an assessment or reassessment u/s 153A arises only when a search has been initiated and conducted. Therefore, such an assessment has a vital link with the initiation and conduct of the search. We have mentioned that a search can be authorised on satisfaction of one of the three conditions enumerated earlier. Therefore, while interpreting the provision contained in section 153A, all these conditions will have to be taken into account. With this, we proceed to literally interpret to provision in 153A as it exists and read it alongside the provision contained in section 132(1).
The provision comes into operation if a search or requisition is initiated after 31.5.2003. On satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income of six years immediately preceding the year of search. The word used is "shall" and, thus, there is no option but to issue such a notice. Thereafter he has to assess or reassess total income of these six years. In this respect also, the word used is "shall" and, therefore, the AO has no option but to assess or reassess the total income of these six years. The pending proceedings shall abate. This means that out of six years, if any assessment Page 13 of 17
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or reassessment is pending on the date of initiation of the search, it shall abate. In other words pending proceedings will not be proceeded with thereafter. The assessment has now to be made u/s 153A (1)(b) and the first proviso. It also means that only one assessment will be made under the aforesaid provisions as the two proceedings i.e. assessment or reassessment proceedings and proceedings under this provision merge into one. If assessment made under sub-section (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B.
The question now is - what is the scope of assessment or reassessment of total income u/s 153A (1) (b) and the first proviso? We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results: -
a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the
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basis of the findings of the search and any other material existing or brought on the record of the AO,
(b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search.”
We have examined the details and noticed that the the regular assessment under s. 143(3) of the Act had been completed as per order dated 22.03.2007 of the AO. Therefore, it follows that as on the date of search, there was an assessment completed on the assessee under section 143(3) of the Act and in the said order there is no addition/ disallowance regarding the remission of foreign currency term loan, subsequently, the A.O. initiated proceedings under s. 153A and in the assessment completed under s. 143(3) r.w.s 153A, the A.O. has brought to tax a sum of Rs. 39,04,49,429/- being the principal amount of loan waived by the lender without any incriminating material found during the course of search. Once this is the position the issue is clearly covered in favour of assessee and against the Revenue by the decision of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (Supra). Respectfully, following the same and in the given said of facts, we are of the view that this principal amount waived by the lender could not be added. Accordingly, we confirm the order of CIT(A) deleting the addition and dismiss this issue of Revenue’s appeal.
Coming to Cross appeal of assessee in ITA No. 621/Mum/2015 for the AY 2005-06 and appeal No. 1166/Mum/2015 for the AY 2006-07, the assessee has raised a new claim altogether regarding electricity charges paid to NESCO amounting to Rs.38.85 crores in AY 2005-06 and amounting to Rs. 16 crores in AY 2006-07.
For AY 2005-06 assessee has raised following grounds: -
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“1. On the facts & circumstances of the case the Learned Commissioner of Income Tax (Appeals) has erred in rejecting the claim of the appellant that they are entitled to deduction of Rs.38.85 Crores being the electricity charges payable to NESCO. The Learned Commissioner of Income Tax (Appeals) has wrongly rejected the claim of the appellant. The appellant prays that the deduction of Rs.38.85 Crores may be granted while computing the total income.
On the facts and circumstances of the case the appellant had disputed the liability towards the payment of Electricity Charges with NESCO. During the assessment year under consideration the dispute was crystallized and settled. The appellant has made settlement with NESCO and the outstanding liability of Rs.108.25 Crores was settled for Rs. 38.85 Crores.
On the facts & circumstances of the case the appellant submit that the electricity charges of Rs. 38.85 Crores may be allowed as deduction.
Without prejudice to grounds No. 1,2 &3, the appellant prays that the deduction of Rs.3 Crores be allowed being the payment made in A.Y. 2005-06 to NESCO in respect of Electricity Charges.”
For AY 2006-07 assessee has raised following grounds: -
“1. On the facts & circumstances of the case the Learned Commissioner of Income Tax (Appeals) has erred in not granting the claim of the appellant that the sum of Rs.16,00,00,000/- paid for electricity charges to NESCO be allowed as deduction while computing the total income.
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The appellant prays that the deduction of Rs.16,00,00,000/- be allowed being the payment made to NESCO in respect of electricity charges.”
At the outset, the learned Counsel for the assessee conceded that this is a new claim made by assessee in this assessment year. According to him, no seized documents were available or no incriminating material was found by the Revenue in regard to claim of deduction of electricity expenses, the assessee has no case on this issue. Accordingly, he conceded that the appeals are to be decided against assessee. Accordingly, these two appeals of assessee are dismissed.
In the result, the appeal of Revenue and that both of assessee, all are dismissed. Order pronounced in the open court on 07-04-2017.
Sd/- Sd/- (RAJESH KUMAR) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 07-04-2017 Sudip Sarkar /Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, Assistant Registrar //True Copy// ITAT, MUMBAI
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